A charge-off is when a lender writes off your debt as a loss on their books
A charge-off happens when you stop paying a debt for 120 to 180 days (usually six months), and the lender decides the account is unlikely to be repaid. The lender removes the balance from their active accounts and records it as a loss for tax purposes. This does not erase the debt—you still legally owe the money. It means the lender has given up trying to collect from you through normal channels and may sell the debt to a collection agency or pursue other recovery methods.
The charge-off appears on your credit report as a negative mark and severely damages your credit score. A charge-off can lower your score by 100 points or more, depending on your current score and credit history. The damage is immediate and lasts for seven years from the date of the first missed payment, even if you pay the debt later.
Charge-offs happen most often with credit cards, personal loans, auto loans, and medical bills. The exact timeline varies by lender and state law, but most creditors charge off accounts between 120 and 180 days past due. Some lenders may attempt charge-off sooner; others may wait longer before formally writing off the account.
Key Takeaways
- A charge-off means the lender has written off your debt as uncollectible, but you still legally owe the money and can be sued for it.
- Charge-offs typically occur after 120 to 180 days of missed payments and damage your credit score for seven years from the first missed payment date.
- After a charge-off, the lender may sell your debt to a collection agency, which can then contact you and attempt to collect the full amount.
- Paying a charged-off debt does not remove it from your credit report, but it stops future collection efforts and may improve your credit score slightly over time.
- You can be sued for a charged-off debt within the statute of limitations, which varies by state and type of debt but is typically three to six years.
How charge-offs damage your credit score
Your credit score drops significantly when an account is charged off because payment history is the largest factor in credit scoring models. A charge-off signals to future lenders that you failed to repay a debt, making them view you as a higher risk. The damage is heaviest in the first year after the charge-off and gradually lessens over time, but the mark remains on your report for seven years.
The exact score drop depends on your starting score and credit profile. If you have a strong credit history with few negative marks, a charge-off may lower your score more dramatically than if you already have other late payments or collections on your report. The impact also varies by credit scoring model—FICO scores and VantageScore weight charge-offs differently.
Even after you pay the charged-off debt, the charge-off itself stays on your credit report for the full seven years. Paying it may cause a small improvement in your score over time because it stops active collection efforts, but it does not remove the negative mark. Some lenders view a paid charge-off more favorably than an unpaid one, but the damage to your creditworthiness remains substantial.
What happens after a lender charges off your account
Once an account is charged off, the lender typically sells the debt to a third-party collection agency for a fraction of what you owe. The collection agency then owns the right to collect from you and will contact you by phone, mail, or email to demand payment. You may receive calls and letters from the collection agency for months or years, even if you cannot pay.
The lender may also keep the debt and attempt to collect it themselves through their own internal collections department. Either way, you remain legally responsible for the full amount owed, plus any interest and fees allowed by state law. The collection agency or lender can file a lawsuit against you to obtain a judgment, which gives them the legal right to garnish your wages, seize bank accounts, or place a lien on your property.
Some charged-off debts are never actively pursued, especially if the amount is small or the lender determines collection is not cost-effective. However, you should not assume inaction means the debt is forgiven. The debt can be sold multiple times to different collection agencies, and each new owner may attempt collection again.
The difference between charge-off and collections
A charge-off is the lender's internal accounting decision to write off the debt as uncollectible. Collections is what happens after—a third party (or the original lender) actively pursues payment from you. The two often occur together, but they are separate events. You can have a charge-off without collections if the lender decides not to pursue recovery, though this is rare.
Both appear on your credit report and damage your score, but they are reported separately. A charge-off shows the original lender's action; a collection account shows that a collection agency now owns or is pursuing the debt. Having both on your report is worse than having one, because it signals multiple failed payment attempts and multiple collection efforts.
The statute of limitations—the time period during which a lender or collection agency can sue you—is separate from the seven-year credit reporting period. You can be sued for a charged-off debt even after it falls off your credit report, depending on your state's laws. Most states allow lawsuits within three to six years of the first missed payment, though some allow longer.
Your options if you have a charged-off account
If you want to stop collection efforts and prevent a lawsuit, you can contact the collection agency or lender and negotiate a settlement. Many collection agencies will accept less than the full amount owed because they bought the debt at a steep discount. Settlements typically range from 30 to 60 percent of the original balance, though this varies widely based on the age of the debt and the collector's assessment of your ability to pay.
Before you settle, get the agreement in writing and specify that the collector will remove the account from your credit report or mark it as "settled" rather than "paid in full." Some collectors will agree to this; others will not. A settled account still appears on your report but may be viewed slightly more favorably by future lenders than an unpaid charge-off.
If you cannot afford to settle, you can request a payment plan from the collector. Some will accept monthly payments over time rather than a lump sum. You can also wait out the statute of limitations in your state, after which the collector cannot sue you, though they may still contact you for payment and the debt remains on your credit report.
Another option is to dispute the charge-off if you believe it is inaccurate. Contact the credit reporting agencies (Equifax, Experian, and TransUnion) in writing and explain why the charge-off is wrong. If the lender cannot verify the debt within 30 days, the agency must remove it from your report. Disputes are most successful if the lender made an error in reporting or if you have evidence the debt was already paid.
How long a charge-off stays on your credit report
A charge-off remains on your credit report for seven years from the date of the first missed payment that led to the charge-off, not from the date the lender formally charged it off. This means the seven-year clock starts when you first fell behind, not when the account was written off six months later. After seven years, the charge-off must be removed from your credit report by law.
The removal is automatic—you do not have to request it. However, you should monitor your credit report to ensure it is actually removed when the seven years are up. You can obtain a free credit report from each of the three major bureaus once per year at annualcreditreport.com. If a charge-off remains after seven years, you can dispute it with the credit bureau.
The seven-year reporting period does not affect the statute of limitations for lawsuits. Even after the charge-off falls off your credit report, a collector may still be able to sue you if your state's statute of limitations has not expired. Check your state's laws to understand how long you can be sued for the debt.
Charge-off versus write-off and other confusing terms
A charge-off is sometimes confused with a write-off, but they mean different things. A write-off is a tax deduction the lender takes for the uncollectible debt. A charge-off is the accounting entry that removes the debt from the lender's active accounts. Both happen at the same time, but write-off refers to the tax benefit, while charge-off refers to the account status.
A charge-off is also different from a debt cancellation or forgiveness. If a lender forgives a debt, they release you from the obligation to repay it. A charge-off does not forgive the debt—it only means the lender has stopped trying to collect it through normal channels. You can still be sued, and collection agencies can still pursue you.
Some lenders use the term "closed for inactivity" or "account closed" when they charge off an account. This does not mean the debt is gone. It means the account is no longer active, but the debt remains your legal responsibility. Always ask the lender or collector to clarify the account status if you are unsure.
Frequently Asked Questions
Can I get a loan after a charge-off?
Yes, but it will be difficult and expensive. Most mainstream lenders will deny you for at least two to three years after a charge-off. After that, you may may have access to for subprime loans with higher interest rates and fees. FHA mortgages may be available after three years if you can explain the charge-off and show improved payment history since then.
Does paying a charge-off remove it from my credit report?
No. Paying a charged-off debt stops collection efforts and may slightly improve your score over time, but the charge-off itself remains on your report for seven years from the first missed payment. It may be reported as "paid" rather than "unpaid," which lenders view more favorably, but the negative mark does not disappear.
What is the difference between a charge-off and a collection account?
A charge-off is when the original lender writes off the debt as uncollectible. A collection account is when a third party (collection agency) now owns or is pursuing the debt. Both damage your credit, but they are separate events. You can have a charge-off without collections if the lender does not pursue recovery.
Can a collection agency sue me for a charged-off debt?
Yes, if the lawsuit is filed within your state's statute of limitations. Most states allow lawsuits within three to six years of the first missed payment. The statute of limitations is separate from the seven-year credit reporting period, so you can be sued even after the charge-off falls off your report.
What should I do if I receive a collection call about a charged-off account?
Do not ignore it. Ask the collector to verify the debt in writing and confirm the amount owed. Request a settlement offer in writing before you agree to anything. If you cannot pay, ask about payment plans. Never give the collector access to your bank account or agree to automatic payments without a written agreement you can review first.